Fitch also maintains a stable fundamental sector outlook for 2017. Title operating margins improved in recent years for most large underwriters. Insurers' staffing and cost structures will likely prove adaptive in managing through any near term revenue and margin pressures.
"Higher interest rates and employment levels are the top risks for title insurers in 2017; however, an uptick in business investment and consumer confidence could benefit title insurers," said
The largest variable influencing mortgage originations and title insurance orders is interest rates, which have recently increased. Higher rates reduce the benefits of mortgage refinancing activity, and may decrease purchase originations or shift some into variable rate loans to offset the rise in borrowing costs.
Over the longer term, a shift to consistent, stronger economic growth, particularly driven by expansion of business investment in housing markets and commercial real estate would positively influence title insurer revenues and earnings.
Fitch's title insurance universe reported a GAAP combined ratio of 93.6% for the first nine months of 2016 almost 2 percentage points worse than prior year. Consolidated GAAP operating profit margin for the group increased to 9.7% in the first nine months of 2016 versus 8.6% in the prior year. Operating margins are anticipated to stay flat to modestly decline in 2017.
Fitch continues to view the industry as strongly capitalized, although capitalization among individual companies varies somewhat. Fitch's view is based on both a non-risk-adjusted approach such as net written premiums-to-surplus and a risk-adjusted approach derived from Fitch's risk-adjusted capital (RAC) model.
The report '2017 Outlook:
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